CHAPTER SIX

THE CONTROLLING FUNCTION

 Controlling: Meaning and processes

 Importance of controlling
 Types of controlling
 Principles of effective controlling functions
6.1 CONCEPT OF CONTROLLING:
 Controlling: Meaning And Processes
 Controlling is a primary goal-oriented function of management in an organisation.
 It is a process of comparing the actual performance with the set standards of the
company to ensure that activities are performed according to the plans and if not then
taking corrective action.
 Controlling function can be defined as ensuring that activities in an organization are
performed as per the plans.
 Controlling also ensures that an organization’s resources are being used effectively &
efficiently for the achievement of predetermined goals.
 Controlling is a goal-oriented function.
 It is a primary function of every manager.
 Controlling function of a manager is a pervasive function.
 Managers at all level of management Top, Middle & Lower – need to perform controlling
function to keep a control over activities in their areas.
 Thus, the controlling function act as a tool which helps in finding out that how actual
performance deviates from standards and also finds the cause of deviations & attempts
which are necessary to take corrective actions based upon the same.
 This process helps in the formulation of future plans in the light of the problems that were
identified &, thus, helps in better planning in the future periods.
 It helps maintain compliance with essential organizational rules and
policies.
 The process of establishing and maintaining authority over and
throughout an enterprise. The organizational control process within a
larger business typically requires the use of systems that assist a
manager in analyzing considerable amounts of data about how the
business and its employees are functioning in order to make
appropriate administrative decisions.
 A process of monitoring performance and taking action to ensure desired results.
 It sees to it that the right things happen, in the right ways, and at the right time.
 Controlling is done well, it ensures that the overall directions of individuals and
groups are consistent with short and long range plans.
 It helps ensure that objectives and accomplishments are consistent with one
another throughout an organization.
 6.2 Importance of Controlling
o Controls make plans effective: Managers need to measure progress,
offer feedback, and direct their teams if they want to succeed.
o Controls make sure that organizational activities are consistent:
Policies and procedures help ensure that efforts are integrated.
o Controls make organizations effective: Organizations need controls in
place if they want to achieve and accomplish their objectives.
o Controls make organizations efficient: Efficiency probably depends
more on controls than any other management function.
o Controls provide feedback on project status: Not only do they
measure progress, but controls also provide feedback to participants as
well. Feedback influences behavior and is an essential ingredient in the
control process.
o Controls aid in decision making: The ultimate purpose of controls is to
help managers make better decisions. Controls make managers aware of
problems and give them information that is necessary for decision making.
 Importance Of Controlling
o Accomplishing Organisational Goals:
 The controlling process is implemented to take care of the plans. With the help of
controlling, deviations are immediately detected and corrective action is taken. Therefore,
the difference between the expected results and the actual results is reduced to the
minimum. In this way, controlling is helpful in achieving the goals of the organisation.
o Judging Accuracy of Standards:
 While performing the function of controlling, a manager compares the actual work
performance with the standards. He tries to find out whether the laid down standards are not
more or less than the general standards. In case of need, they are redefined.
o Making Efficient Use of Resources:
 Controlling makes it possible to use human and physical resources efficiently. Under
controlling, it is ensured that no employee deliberately delays his work performance. In the
same way, wastage in all the physical resources is checked.
 Importance Of Controlling

o Improving Employee Motivation:

 Through the medium of controlling, an effort is made to motivate the employees. The
implementation of controlling makes all the employees to work with complete dedication
because they know that their work performance will be evaluated and if the progress
report is satisfactory, they will have their identity established in the organisation.
o Ensuring Order and Discipline:
 Controlling ensures order and discipline. With its implementation, all the undesirable
activities like theft, corruption, delay in work and uncooperative attitude are checked.
o Facilitating Coordination in Action:
 Coordination among all the departments of the organisation is necessary in order to
achieve the organisational objectives successfully. All the departments of the
organisation are interdependent. For example, the supply of orders by the sales
department depends on the production of goods by the production department.
 Through the medium of controlling an effort is made to find out whether the production
is being carried out in accordance with the orders received. If not, the causes of
deviation are found out and corrective action is initiated and hence, coordination
between both the departments is established.
 6.3 EFFECTIVE CONTROLS
The Best Controls In Organizations Are:

 Timely and exception oriented

 Strategic and results oriented

 Positive in nature
 Understandable

 Fair and objective

 Encourage self-control

 Flexible
 Characteristics of an Effective Control Systems
 Accuracy: Effective control systems provide factual information that's useful, reliable, valid, and
consistent.
 Effective controls generate accurate data and information. Accurate information is essential for
effective managerial decisions. Inaccurate controls would divert management efforts and energies
on problems that do not exist or have a low priority and would fail to alert managers to serious
problems that do require attention.
 Timeliness:
 There are many problems that require immediate attention. If information about such problems
does not reach management in a timely manner, then such information may become useless and
damage may occur. Accordingly controls must ensure that information reaches the decision
makers when they need it so that a meaningful response can follow.
 Flexibility:
 The business and economic environment is highly dynamic in nature. Technological changes occur
very fast. A rigid control system would not be suitable for a changing environment. These changes
highlight the need for flexibility in planning as well as in control.
 Strategic planning must allow for adjustments for unanticipated threats and opportunities.
Similarly, managers must make modifications in controlling methods, techniques and systems as
they become necessary. An effective control system is one that can be updated quickly as the
need arises.
 Characteristics of an Effective Control Systems

 Acceptability:
 Controls should be such that all people who are affected by it are able to understand
them fully and accept them. A control system that is difficult to understand can cause
unnecessary mistakes and frustration and may be resented by workers.
 Accordingly, employees must agree that such controls are necessary and appropriate
and will not have any negative effects on their efforts to achieve their personal as well
as organizational goals.
 Integration:
 When the controls are consistent with corporate values and culture, they work in
harmony with organizational policies and hence are easier to enforce. These controls
become an integrated part of the organizational environment and thus become
effective.
 Economic feasibility:
 The cost of a control system must be balanced against its benefits. The system must be
economically feasible and reasonable to operate. For example, a high security system to
safeguard nuclear secrets may be justified but the same system to safeguard office
supplies in a store would not be economically justified. Accordingly the benefits received
 Characteristics of an Effective Control Systems

 Strategic placement:
 Effective controls should be placed and emphasized at such critical and strategic control points
where failures cannot be tolerated and where time and money costs of failures are greatest.
 The objective is to apply controls to the essential aspect of a business where a deviation from
the expected standards will do the greatest harm. These control areas include production,
sales, finance and customer service.
 Corrective action:
 An effective control system not only checks for and identifies deviation but also is programmed
to suggest solutions to correct such a deviation. For example, a computer keeping a record of
inventories can be programmed to establish “if-then” guidelines. For example, if inventory of a
particular item drops below five percent of maximum inventory at hand, then the computer will
signal for replenishment for such items.
 Emphasis on exception:
 A good system of control should work on the exception principle, so that only important
deviations are brought to the attention of management, In other words, management does not
have to bother with activities that are running smoothly. This will ensure that managerial
attention is directed towards error and not towards conformity. This would eliminate
unnecessary and uneconomic supervision, marginally beneficial reporting and a waste of
managerial time.
 6.4 THE CONTROL PROCESS

I. Setting performance standards: Managers must translate plans into performance standards. These
performance standards can be in the form of goals, such as revenue from sales over a period of time. The
standards should be attainable, measurable, and clear.

II. Measuring actual performance: If performance is not measured, it cannot be ascertained whether
standards have been met.

III. Comparing actual performance with standards or goals: Accept or reject the product or outcome.

IV. Analyzing deviations: Managers must determine why standards were not met. This step also involves
determining whether more control is necessary or if the standard should be changed.

V. Taking corrective action: After the reasons for deviations have been determined, managers can then
develop solutions for issues with meeting the standards and make changes to processes or behaviors.
 The Control Process

 Setting performance standards : The control process begins with planning and the
establishment of performance objectives. Performance objectives are defined and the
standards for measuring them are set.
 There are two types of standards:
 Output Standards - measures performance results in terms of quantity, quality,
cost, or time.
 Input Standards - measures work efforts that go into a performance task.
 Measuring actual performance: Measurements must be accurate enough to spot deviations or
variances between what really occurs and what is most desired.
 Without measurement, effective control is not possible.
 Comparing actual performance with standards or goals: The comparison of actual performance
with desired performance establishes the need for action.
 Ways of making such comparisons include: Benchmarking /Historical
 Taking corrective action: Taking any action necessary to correct or improve things.
1. Feed-Forward Controls:
6.5 TYPES OF CONTROL
2. Concurrent Control:
 Feed forward controls are future-directed  Concurrent controls monitor ongoing employee
— they attempt to detect and anticipate
activity to ensure consistency with quality
problems or deviations from the
standards. These controls rely on performance
standards in advance of their occurrence
standards, rules, and regulations for guiding
(at various points throughout the
employee tasks and behaviors.
processes).
 Their purpose is to ensure that work activities
 They are much more active, aggressive in
produce the desired results.
nature, allowing corrective action to be
 As an example, many manufacturing operations
taken in advance of the problem.
include devices that measure whether the items
 Feed forward controls thus anticipate being produced meet quality standards. Employees
problems and permit action to be taken monitor the measurements; if they see that
before a problem actually arises. standards are not being met in some area, they
 make a correction themselves or let a manager
Sometimes called preliminary or
know that a problem is occurring.
preventive controls, attempt to identify
and prevent deviations in the standards  Concurrent control allows people to act on a
before they occur. process or activity while it is proceeding.
 Feedforward controls focus on human,  Corrections and adjustments can be made as and
material, and financial resources within when the need arises. Such controls focus on
the organization. These controls are establishing conditions that will make it difficult or
evident in the selection and hiring of new impossible for deviations from norms to occur.
3. Feedback Controls:
 Feedback control is future-oriented. It is historical in nature and
is also known as post-action control. The implication is that the
measured activity has already occurred, and it is impossible to
go back and correct performance to bring it up to standard.
Rather, corrections must occur after the act.  Involve reviewing information
 Such post-action controls focus on the end results of the to determine
process. whether performance meets

established standards.
The information derived is not utilised for corrective action on a
project because it has already been completed. Such control  For example, suppose that an
provides information for a manager to examine and apply to organization establishes a goal
future activities which are similar to the present one. The basic of increasing its profit by 12
objective is to help prevent mistakes in the future. percent next year.
 This is the least proactive of controls and is generally a basis  To ensure that this goal is
for reactions. Feedback controls permit managers to use
reached, the organization
information on past performance to bring future performance in
line with planned objectives. must monitor its profit on a
monthly basis.
 For example, at the end of an accounting year, the manager
should carefully review the analysis of the budget control  After three months, if profit
report. has increased by 3 percent,
management might assume
that plans are going
END OF CHAPTER SIX

CHAPTER SEVEN: DECISION

MAKING